REPORT TO COUNCIL AND SUNNYVALE FINANCING AUTHORITY
SUBJECT
Title
City Council Adoption of the FY 2019/20 Budget, Fee Schedule, and Appropriations Limit and Sunnyvale Financing Authority Adoption of the FY 2019/20 Budget
Report
BACKGROUND
On May 8, 2019, the City Manager’s FY 2019/20 Recommended Budget was provided to City Council and made publicly available on the City’s website and at the Sunnyvale library. On May 23, 2019, City Council held a budget workshop to review in detail the recommended budget and twenty-year resource allocation plan. On June 11, 2019, the City Council held a public hearing on the FY 2019/20 Recommended Budget, the establishment of the City’s Appropriations Limit, and the Fee Schedule. No public comments were made at this hearing. Notification of the hearing was also sent to those who specifically requested notice of fee increases as per the provisions of California Government Code section 66016(a). Council must now consider the adoption of the FY 2019/20 Budget, Fee Schedule, and Appropriations Limit.
The FY 2019/20 Recommended Budget also includes the annual budget for the Sunnyvale Financing Authority, the governing body established to provide the debt service for the Sunnyvale Office Center. The only appropriation for the Financing Authority is the annual debt service payment for the Sunnyvale Office Center. The governing board of the Joint Powers Agency, the Sunnyvale Financing Authority held a public hearing on the Authority’s FY 2019/20 Budget on June 11, 2019. The Authority must now consider the adoption of the FY 2019/20 Budget.
EXISTING POLICY
The California Constitution Article XIIIB requires that the City annually adopt an appropriations limit for the upcoming fiscal year.
California Government Code Section 6508 requires that any annual budget of the agency to which the delegation is made must be approved by the governing body of the Joint Powers Agency (Sunnyvale Financing Authority).
City Charter, Section 1304 requires the City Council to adopt the budget for the upcoming fiscal year on or before June 30.
Section 4.2 of the Joint Exercise of Powers Agreement Creating the Sunnyvale Finance Authority requires the adoption of a budget prior to July 1 of each year.
Council Policy 7.1.1 Fiscal -Long Range Goals and Financial Policies:
7.1A.1.3 A balanced Twenty-Year Resource Allocation Plan shall be presented to the City Council annually.
7.1A.1.8 Boards and Commissions should review the annual budget as appropriate to their area of interest and make recommendations to the City Council.
7.1A.1.9 The City Council shall adopt the City Manager’s Recommended Budget, with any changes desired, by resolution before June 30th of each year.
7.1A.1.13 All competing requests for City resources should be weighed within the formal annual budget process.
7.1E.1.4 The Budget Stabilization Fund will be a minimum of 15% of projected revenues for the first two years of the 20-year planning period. Beyond year two, the Budget Stabilization Fund will always have a balance of at least zero.
ENVIRONMENTAL REVIEW
The adoption of the City and Sunnyvale Finance Authority’s budgets and the City’s
FY 2019/20 Appropriations Limit are a fiscal activity that does not require review under the Environmental Quality Act (CEQA Guidelines, Section 15378(b)(4)).
The adoption by the City’s FY 2019/20 Fee Schedule is exempt from the California Environmental Quality Act pursuant to Public Resources Code Section 21080(b)(8), because the fees, rates and charges are for the purposes of (1) meeting operating expenses, including employee wage rates and fringe benefits; (2) purchasing or leasing supplies, equipment or materials; (3) meeting financial reserve needs and requirements; (4) obtaining funds for capital projects, necessary to maintain service within the existing service areas; and/or (5) obtaining funds necessary to maintain intra-city transfers.
DISCUSSION
Three actions by the City Council are required at tonight’s meeting, and one action is required by the Sunnyvale Financing Authority. First, the City Council must consider and take action on the proposed fee changes. The proposed Fee Schedule is presented as Exhibit A under Attachment 1 - FY 2019/20 Fees, Rates, and Charges Resolution.
Second, the City Council must adopt the FY 2019/20 Budget by June 30, 2019. Traditionally, this has been accomplished by resolution. The Budget Resolution, including exhibits, presents the appropriations by fund, fund transfers, and reserve changes that are necessary to implement the budget as recommended in this report (Attachment 2).
Third, the City Council must adopt, by resolution, the FY 2019/20 Appropriations Limit. The calculations and detailed supporting information are contained in Attachment 3. A discussion concerning each of the three actions required by Council is included below.
Lastly, the Sunnyvale Financing Authority must adopt, by resolution, the FY 2019/20 Budget for Debt Service related to the Sunnyvale Office Center, which totals $933,026. The Budget Resolution (Attachment 4) includes the appropriation for the debt service payment.
Fees, Rates, and Charges
The current fees and charges of the City have been reviewed in accordance with the Council Fiscal Policy. After a detailed staff review of fees, necessary adjustments have been made to the proposed Fee Schedule to ensure fees and charges are aligned with the cost to provide each service. The only exceptions are those fees that are legally limited, market based, or subsidized for public purpose. Certain new fees have been added to the Fee Schedule where appropriate. Other details regarding the proposed fee changes are discussed in Report to Council No. 19-0357, presented on June 11, 2019. During the June 11 public hearing, Council took public input and there was no action taken that affected the fees proposed.
Summary of FY 2019/20 Recommended Budget
The FY 2019/20 Recommended Budget is focused on the City’s projects and includes a
balanced inventory of proposed projects that reflect the City’s wide range of services. Therefore, in support of our community values and Council’s strategic priorities, this budget allocates significant resources to projects as an investment in the City’s infrastructure, public safety, and reducing greenhouse gas emissions. Additionally, this budget positions the City for sustainable, fiscally responsible growth.
As published on May 8, 2019, the FY 2019/20 Recommended Budget provides for a balanced budget of approximately $493.2 million in total revenues and expenditures (including contributions to reserves). Of the expenditure total, $302.2 million is for operating; $96.9 million is for projects, project administration, and council service level set-aside; and $9.6 million is for other expenditures including debt service, lease payments, and equipment. Planned contributions to reserves totals $84.5 million citywide, which factors in drawdowns and additions to reserves across funds.
Updates to FY 2019/20 Recommended Budget
It should be noted that the amounts proposed for adoption have changed subsequent to the public hearing due to reconciling authorized position changes that occurred after development of the Recommended Budget as well as truing up project and operational costs and including any budget modifications adopted after delivery of the Recommended Budget. The largest change is that during Recommended Budget development, staff incorrectly reflected projects in the Water Supply and Distribution Fund, leaving them out of the summary. The net effect is an increase in the projects budget of approximately $7 million, and a decrease in contributions to reserves by an equal amount. The other changes are related to the positions, and the addition of the Budget Modification related to Golf Operations adopted by Council on June 11, 2019.
The updated FY 2019/20 Budget reflects approximately $494 million in total revenues and expenditures (including contributions to reserves). Of the expenditure total, $304.1 million is for operating; $103.6 million is for projects, project administration, budget supplements and council service level set-aside; and $9.6 million is for other expenditures including debt service, lease payments, and equipment. Planned contributions to reserves totals $76.6 million citywide, which factors in drawdowns and additions to reserves across funds.
Projects
Over the course of a project’s life, unspent funding is carried over from year-to-year. Accordingly, many construction projects in FY 2019/20 are projects that have continued from prior fiscal years with some project budgets increasing with an additional appropriation in FY 2019/20. Major capital projects include the rehabilitation of the Fair Oaks Avenue Overhead Bridge, Lakewood Branch Library, reconfiguration of Mathilda/237/101 intersection, and the Washington Community Swim Center. Infrastructure funding for the Civic Center Modernization project as well as funding for pavement and the replacement of sidewalks, curbs and gutters is also included. Other significant investments in infrastructure include $214 million for the City’s parks with all parks scheduled for renovation over the twenty-year period as well as project funding for the All-Inclusive Playground and Playground Equipment Replacement Project. Additionally, the FY 2019/20 Recommended Budget provides updated project budgets associated with Traffic and Transportation, the Cleanwater Program, and other projects necessary for the repair and/or rehabilitation of the City’s infrastructure.
In addition to demonstrating the City’s investment in infrastructure, the FY 2019/20 Recommended Budget also includes projects that support the City’s commitment to other strategic initiatives, such as: implementing the IT Strategic Plan, preparing for district-based elections, developing and implementing the City’s Climate Action Plan 2.0, and organizational development. Moreover, the budget earmarks $84 million for public safety recruitment and training projects over the twenty-year period. The Recommended Budget includes projects to support affordable housing and human services as well.
Operating
While the FY 2019/20 Budget is focused on projects, the budget also includes significant funding toward operations totaling $304.1 million in FY 2019/20. This budget continues the City’s investment in attracting and retaining personnel by prudently planning for total compensation costs over the twenty-year period, including budgeting $9 million over nine years in the City’s recently established Pension Stabilization Trust Fund to reserve resources for pension cost uncertainty. Total compensation is estimated to increase approximately 6% in the FY 2019/20 Recommended Budget when compared to the prior year.
The Recommended Budget also reflects current and anticipated contractual costs as well as updated operating costs associated with project completion. Additionally, this budget continues the planned subsidy for the Golf and Tennis Operations fund with $1.5 million programmed for FY 2019/20.
Reserves
One of the key tools the City uses in its budget are reserves. Reserves are intended for many different needs, including emergencies, holding restricted monies, or to balance out cash flow and economic volatility. The funds in which the budget assumes a planned drawdown of reserves include the General Fund, CDBG, Gas Tax, General Services, and Liability and Property. The use of reserves in those funds is offset by addition to reserves in other funds, including Housing, Park Dedication, Development Enterprise, and Capital Projects due to elevated Impact Fee revenue. In addition, the Infrastructure Renovation and Replacement Fund and the Utility funds (i.e., Wastewater and Water) have added to reserves due to funds being set aside for significant capital projects scheduled over the next two to three years.
We frequently discuss the Budget Stabilization Fund Reserve in the General Fund, which serves as the General Fund’s economic volatility and cash flow reserve. In the Recommended Budget, the projected Budget Stabilization Fund maintains a stable position throughout the twenty-year plan. Further, the FY 2019/20 General Fund Budget Stabilization Reserve achieves the policy requirement of being at a level of at least 15% of total revenues for the first two years even with the FY 2019/20 Recommended General Fund budget.
After adjusting for one-time transactions, expenditures continue to outpace revenues in the near-term. The Budget Stabilization Fund is anticipated to drop to a low of $13 million in FY 2028/29 before revenues are anticipated to outpace expenditures. At the end of the 20-year financial plan, the Budget Stabilization Fund balance is projected at approximately $66 million. City Council Reserve Policy 7.E.1 states that beyond year two, the Budget Stabilization Fund will always have a balance of at least zero and the FY 2019/20 Recommended Budget meets this requirement.
Budget Supplements
For the FY 2019/20 Recommended Budget, 13 budget supplements are presented for Council consideration. Staff recommended funding for 11 supplements and the City Council had further discussion during the Budget Workshop on May 23, 2019. The City Council approved staff’s recommendation with a modification to Budget Supplement # 2. Budget supplement # 2 passed with a substitute motion to fund at a $75,000 level. With this modification, the recommended Budget Supplements total $632,000 in FY 2019/20 and approximately $1.3 million over twenty years. A complete description of each budget supplement is included in Volume I of the FY 2019/20 Recommended Budget.
Appropriations Limit
The appropriations limit, required by Article XIIIB of the State Constitution, places a limit on the amount of revenue that can be spent by government entities and is set on an annual basis. The purpose of the appropriations limit is to preclude state and local governments from retaining excess revenues, which are required to be redistributed back to taxpayers and schools. To date, the City has not exceeded its appropriations limit in any year. California Government Code section 7910 requires the City annually adopt an appropriations limit for the coming year. The appropriations limit is dependent upon the change in population within the jurisdiction and the change in the cost of living, as determined by the State. State law requires the Council to select one factor by which the limit is calculated. The options available are as follows:
1. Inflation Factors
a) California per capita income
b) Increase in non-residential assessed valuation due to new construction
2. Population factors
a) City population growth
b) County population growth
For FY 2019/20, the choices that lead to the most favorable appropriations limit are California per capita income and the City population growth factor, and these are the factors staff used to calculate this value.
As shown in Attachment 3, the appropriations limit for FY 2019/20 is $243,596,754. Expenditures subject to the appropriations limit exclude Redevelopment Successor Agency activity, enterprise and internal service activity, debt service payments, and capital outlay projects purchased with tax proceeds that have a useful life of ten years or more and a value that exceeds $100,000. Non-tax revenues, such as federal and state grants, fees for service, or revenues restricted for specific purposes are also excluded from the calculation. The City will be under the allowable appropriations limit by approximately $132.3 million for FY 2019/20, which means that the City has additional capacity allowed by law of approximately $132.3 million before the limit is reached.
Note that the Appropriations Limit attached has been amended from the original included in the June 11, 2019 City Council Meeting (RTC No. 19-0356) and includes any updates as applicable to the changes outlined above.
FISCAL IMPACT
The City Manager’s FY 2019/20 Recommended Budget presents a balanced allocation of resources designed to advance the policy priorities set by Council, continue providing a high level of service, fund projects, and begin to meet the increasing demands of a growing economy while maintaining a sustainable financial position for the City.
PUBLIC CONTACT
Public contact was made by posting the Council agenda on the City's official-notice bulletin board outside City Hall, at the Sunnyvale Senior Center, Community Center and Department of Public Safety; and by making the agenda and report available at the Sunnyvale Public Library, the Office of the City Clerk, and on the City's website.
Public Hearing
On June 11, 2019, the City Council held a public hearing on the FY 2019/20 Recommended Budget and Resource Allocation Plan, the Appropriations Limit, and the proposed Fee Schedule. Council took public input and there was no action taken that affected the FY 2019/20 Recommended Budget.
On June 11, 2019, the Sunnyvale Financing Authority held a public hearing on the FY 2019/20 Recommended Budget. The Sunnyvale Financing Authority took input from the public. No action affecting the FY 2019/20 Recommended Budget was taken.
Boards and Commissions Budget Review
All the City’s boards and commissions have had the opportunity to review the FY 2019/20 Recommended Budget, which was made available to them on May 8, 2019. Meeting minutes from the boards and commissions that held meetings to discuss the budget prior to submission of this report are included in Attachment 5 of this report. Recommendations to Council on the budget were voted on and are detailed in the minutes. Given the short timeframe available for review of the minutes by the boards and commissions, some of the minutes are draft minutes.
ALTERNATIVES
1. City Council:
Adopt the resolutions presented as Attachment 1 (including Exhibit A), Attachment 2 (including Exhibits A through D), and Attachment 3 (including Exhibit A) that provide for the adoption of the FY 2019/20 Fee Schedule, Budget, and Appropriations Limit.
2. Sunnyvale Financing Authority:
Adopt the FY 2019/20 Budget Resolution (Sunnyvale Financing Authority) presented as Attachment 4 to the report.
3. City Council:
Adopt the resolutions specified in Alternative 1 with amendments to the 2019/20 Budget, 2019/20 Fee Schedule or revisions to the Appropriations Limit. (e.g., identifying, in the case of increases in expenditures, any corresponding decreases in expenditures, draws from reserves, or increases in revenue to ensure there is no adverse effect to the City’s financial position).
STAFF RECOMMENDATION
Recommendation
City Council:
Alternative 1: Adopt the resolutions presented as Attachment 1 (including Exhibit A), Attachment 2 (including Exhibits A through D), and Attachment 3 (including Exhibit A) to the report that provide for the adoption of the FY 2019/20 Fee Schedule, Budget, and Appropriations Limit.
Sunnyvale Financing Authority:
Alternative 2: Adopt the FY 2019/20 Budget Resolution (Sunnyvale Financing Authority) presented as Attachment 4 to the report.
Staff
Prepared by: Felicia Silva, Budget Manager
Reviewed by: Timothy J. Kirby, Director of Finance
Reviewed by: Teri Silva, Assistant City Manager
Approved by: Kent Steffens, City Manager
ATTACHMENTS
1. FY 2019/20 Fees, Rates, and Charges Resolution, including Exhibit A. FY 2019/20 Fee Schedule
2. FY 2019/20 Budget Resolution, including:
Exhibit A. Appropriations - General Fund, Special Revenue Funds,
Enterprise Funds
Exhibit B. Appropriations - Internal Service Funds
Exhibit C. Transfers - To/From All Funds
Exhibit D. Appropriations To/Deductions From Reserves - All Funds
3. FY 2019/20 Appropriations Limit Resolution, including Exhibit A. Appropriations Limit
4. Sunnyvale Financing Authority FY 2019/20 Budget Resolution, including Exhibit A
5. Draft Board and Commission Meeting Minutes for the FY 2019/20 Recommended Budget